Lloyd's chairman presses for efficiency. (RIMS Conference: Property/Casualty).

Buoyed by strong results for 2002, Lloyd's Chairman Lord Peter Levene is pushing hard for the market to continue modernizing and cutting costs, and he warned that resisting change would erode the competitive positions of players in the market that don't keep pace.

High costs and inefficiency at Lloyd's are two legitimate issues that clients bring up consistently when Levene Visits the United States, he said at the Risk and Insurance Management Society's annual conference in Chicago. He acknowledged that Lloyd's can't force its members to join the march toward modernization. But for those that do, "once we succeed in that area, then they are going to be several steps ahead of those who haven't bothered, and that's going to give them a commercial advantage, up to the point where the others are then just going to have to follow suit," he said.

Levene also acknowledged a potential downside to the market's return to profitability--that it might remove the urgency of bringing the market's business processes up to date. While every business owner wants to boost efficiency in principle, "the whole issue...is what they're actually going to do about it," he said.

Levene recently took the chairmanship of Lloyd's as the first outsider to hold the post in the history of the market. His most recent post was at Deutsche Bank London, but he brought with him a wide array of experience in business and government in the United Kingdom, where he has gained a reputation as a turnaround specialist for troubled enterprises. He came on board as the market undertook a radical restructuring and enjoyed the strongest underwriting conditions seen in years.

Levene said Lloyd's is making a concerted effort to educate the U.K. business community about the current state of the market. "We are putting a lot of effort now into addressing the wider business community outside of the insurance industry. I would say without exception the people we're talking to are very pleasantly surprised when they learn what's happening," Levene said.

As part of a major overhaul instituted last year, Lloyd's has switched to annual accounting from the unique three-year system the market used for much of its history. The first official results compiled on an annual basis showed a record profit of $1.34 billion for 2002 as Lloyd's emerged from a string of losing years, capped by a 2001 loss of $4.5 billion.

One change Levene said not to expect is any move to oust the remaining individual members, or Names, who provided about 13% of Lloyd's capital as of year-end 2002. The infusion of corporate capital since it first entered the market in 1994 has kept Lloyd's from becoming "a bit player," Levene said, but he noted that the remaining Names now represent some major investors. "Our relationship with private capital is absolutely fine," he said, adding that Lloyd's expects the British government to propose tax changes in its upcoming budget that would benefit Names.

In a press conference at the RIMS gathering, Levene said U.S. litigants seem to view the insurance industry as a "magical fruit machine" that spews cash, without realizing that they are only collecting money they have already fed into the system. "The people who are pouring money in at the top are the same people who are pulling money out at the bottom," he said.